Rising protectionism

The dumping dilemma

Trade-remedy laws are damaging the world trade system

A PROMISING aspect of the global trade agenda that was launched at Doha last November was the agreement to revisit the rules about when countries may slap on temporary protection against imports. The World Trade Organisation allows several types of protection: safeguards against import surges, countervailing duties against subsidised goods, and duties against foreign products deemed to have been dumped on local markets.

These rules have long been misused as a cover for protectionism. Before Doha, America, in particular, was not keen to revisit them. The administration's change of heart, therefore, was welcome progress. Yet since then, ever more examples show how so-called trade remedies are proliferating, with pernicious effects. The prospects for reform are fading.

The biggest blow has come from America's lawmakers. On May 23rd the Senate passed legislation under which congressmen agree to vote for or against any future trade deals, but not to amend them. It gives George Bush's administration “fast-track” authority to negotiate complex trade deals, such as the Doha round. However, in an egregious amendment, the Senate excluded any changes to America's trade-remedy laws from fast-track protection.

The White House threatens to veto any bill including this amendment. So it may be excised, or weakened, from the compromise legislation that must still be hammered out between the Senate and the House of Representatives. Yet the signal rings clear. America's lawmakers resent any negotiations on global trade-remedy rules that will weaken their ability to protect American firms against supposedly unfair competition.

These types of trade remedies increasingly threaten the global trading system. For a start, they are proliferating promiscuously. Work by a law firm, Mayer, Brown, Rowe & Maw, shows that they reached unprecedented levels last year: a record one for anti-dumping and safeguard investigations, and the second highest year for anti-subsidy investigations. Driven largely by America's actions in the steel industry, 53 safeguard investigations were initiated last year, up from five in 1996. Some 24 countries initiated 348 anti-dumping investigations, involving 139 different products. Anti-dumping cases have tripled since the 1980s (see chart).

Although rich countries, notably America and the European Union, have traditionally been the ardent users of anti-dumping duties, India now rivals them. It has initiated 170 anti-dumping investigations since 1999, one short of America's total. By contrast, it initiated a mere 15 investigations in the first half of the 1990s. Elsewhere, emerging economies are turning to anti-dumping protection: last year they accounted for 18 of the 24 countries that launched anti-dumping actions. Rich countries also are increasingly the targets of anti-dumping. According to Brink Lindsey at the Cato Institute, a think-tank, America became the world's third-largest target of anti-dumping actions in the last half of the 1990s, after China and Japan.

This proliferation is unlikely to abate. Most observers reckon that China, a new member of the WTO, will become a big user of anti-dumping actions, as well as being on the receiving end. The products targeted by such actions are also likely to broaden. Until now, most anti-dumping actions have focused on steel and chemicals. Yet once the global quota system for textiles is removed in 2005, rich countries may resort to trade-remedy rules to protect themselves from increases in textile imports from poor countries. That is why many developing countries are keen to see trade-remedy laws reformed, even though they themselves increasingly use them.

More immediately, trade-remedy rules risk souring the environment for global trade. America's decision to impose steel safeguards has already unleashed safeguard actions in other countries, along with the threat of retaliation. Last week China became the latest country to announce its own provisional safeguards. Meanwhile, the list of complaints at the WTO about America's action on steel grows longer: besides the European Union, seven countries have now filed formal complaints. Although America claims it acted entirely within WTO rules, Europeans disagree—and point out that America has lost several safeguard disputes at the WTO.

Last month China also won its first-ever case in America against an anti-dumping decision. The EU and Japan have threatened retaliatory tariffs over steel as early as mid-June. The furore about America's steel safeguards is another argument for clearer global rules about trade remedies. The attitude of lawmakers in Washington suggests that it is going to be an uphill battle.